Thursday, January 15, 2015

The Monetary System is Not Based on Tangible Assets Anymore

It's the belief that the national currency that people are using for transactions in commerce is money. But in fact, all of these currencies are not really money; they are a money substitute circulating in place of money.

Bubbles are characterized by having some conventional wisdom that everybody believes, but is flawed. When the bubble pops, they realize how wrong they were in believing it. So for example, in the dot-com bubble, everybody said profits don't matter, only market share does. When that bubble popped, everybody realized how wrong that was. Then in the housing bubble, everybody said housing prices only go up, and we know what happened there.

Well, in the money bubble, everybody thinks that what we're using in commerce is money. That's the conventional wisdom, and it's wrong because national currency is just a money substitute circulating in place of money. Money of course is gold or silver.

There's an important point to make here. Basically what I'm saying is that goods and services pay for goods and services. We individuals work in order to fulfill our needs and our wants. And that in effect is saying that the labor we provide buys goods and services. This same principle has also always applied to money. Miners work in order to produce gold and silver that they use to buy goods and services.

But the problem today is that the monetary system is not based on a tangible asset anymore; it's based on credit. It's just based on promises and currency that's created out of thin air.